Citi Chairman Is Said to Have Planned Chief’s Exit Over Months

Jessica Silver-Greenberg and Susanne Craig

Friday, 26 Oct 2012 | 1:53 AM ETThe New York Times

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Vikram Pandit's last day at Citigroup swung from celebratory to devastating in a matter of minutes. Having fielded congratulatory e-mails about the earnings report in the morning that suggested the bank was finally on more solid ground, Mr. Pandit strode into the office of the chairman at day's end on October 15 for what he considered just another of their frequent meetings on his calendar.

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Vikram Pandit

Instead, Mr. Pandit, the chief executive of Citigroup, was told three news releases were ready. One stated that Mr. Pandit had resigned, effective immediately. Another that he would resign, effective at the end of the year. The third release stated Mr. Pandit had been fired without cause. The choice was his.

The abrupt encounter, described by three people briefed on the conversation, included a terse comment by the chairman, Michael E. O'Neill: "The board has lost confidence in you."

A stunned Mr. Pandit chose to resign immediately. Even though Mr. Pandit and the board have publicly characterized his exit as his decision, interviews with people close to the board describe how the chairman maneuvered behind the scenes for months ahead of that day to force Mr. Pandit out and replace him with Michael L. Corbat, the board's chosen successor.

Once he became chairman this year, Mr. O'Neill, 66, meticulously built a case for the chief executive's ouster, they say, first meeting privately with less-satisfied board members and then drawing in others until Mr. Pandit had virtually no allies left.

As Mr. Pandit was reeling from his encounter, three board members confronted John Havens, the bank's chief operating officer and a longtime lieutenant.

"Vikram has offered his resignation, and we would like to give you the opportunity to offer yours," a board member said, following a script prepared by the board's lawyers, according to several people with knowledge of the meeting.

Startled, Mr. Havens briefly challenged the directors, pointing to the solid performance of the institutional clients group, and then relented, saying his resignation would be on Mr. Pandit's desk within five minutes.

The dramatic boardroom coup at the bank's Park Avenue headquarters has rankled some people at Citi, especially senior executives who feel that the action was needlessly ruthless and who spoke only on the condition that they not be identified. They point out that Mr. Pandit successfully steered the once moribund bank through one of its most turbulent chapters, repaid roughly $45 billion in federal lifelines, rebuilt capital and began to focus the sprawling institution.

This week, senior executives at the investment bank convened a group of employees to try to stem any exodus, according to several people briefed on the meeting. Among the employees' questions: why remain at a bank that treated its top executive so harshly?

Now, the new top officials of the bank are circling to retain the support of some crucial executives, including Brian Leach, Citi's chief risk officer and a longtime ally of Mr. Pandit, and James A. Forese, who heads the securities and banking division, according to several people close to the discussions.

Mr. Pandit, Mr. O'Neill, Mr. Havens and Mr. Corbat did not return calls for comment or declined to comment.

The seeds of the turmoil were planted in April when Mr. O'Neill, who had been on the board since 2009, took over as chairman from Richard D. Parsons.

Some executives close to Mr. Pandit immediately identified Mr. O'Neill's ascent as bad news for Mr. Pandit, regardless of how the bank was faring. After all, Mr. O'Neill had vied for the chief executive position before it ultimately went to Mr. Pandit in 2007.

Still, the board transition appeared to go smoothly at first. The handover was marked by a dinner at Citi's headquarters. Together, Mr. Pandit and Mr. O'Neill roasted the departing chairman, considered more of a diplomat than a strategic banker. At one point, Mr. O'Neill gave a lei to Mr. Parsons, in recognition of their shared fondness of Hawaii: Mr. Parsons attended a university there and Mr. O'Neill was chairman and chief executive of the Bank of Hawaii.

Beneath the gaiety, though, tensions between Mr. Pandit and Mr. O'Neill were already building, some executives said. The dinner came roughly a month after the Federal Reserve dealt an embarrassing setback to Citi by rejecting its proposal to buy back shares and increase its dividend to shareholders. Mr. O'Neill used that March misstep to persuade some board members that a better relationship with regulators could have avoided the public failure. Some board members felt, according to people close to the bank, that the Federal Reserve had needed to reject the capital plans of one bank to lend credibility to its stress tests. A handful blamed Mr. Pandit for allowing Citi to become that bank.

Compared with Mr. Parsons, Mr. O'Neill took an unusually active managerial role at Citigroup, visiting trading floors and asking detailed questions about some of the business lines. This involvement at times agitated Mr. Pandit, according to the people briefed on the matter.

Adding to the acrimony with the board, a person who had worked for years to keep the directors informed, Citi's longtime general counsel, Michael Helfer, left in May.

As summer came, Mr. O'Neill continued to make his case, raising concerns about Mr. Pandit's grasp of certain business issues to a handful of board members he considered sympathetic, including William Thompson, the former chief executive of Pacific Investment Management according to several people close to the bank. Mr. Thompson did not return calls for comment, nor did other members of the board.

By August, the chairman had the support of at least a handful of board members, including Diana Taylor. Some directors felt that Mr. Pandit had left them out of the loop at times.

Mr. O'Neill continued to build his case for a leadership change in individual meetings, according to several people familiar with the discussions. He chose to meet with the board members most loyal to Mr. Pandit last. In some of these discussions, he told the board members that the decision to replace Mr. Pandit was already backed by a majority of the 12-person board, according to people familiar with the discussions.

As to a successor, Mr. O'Neill had grown comfortable with Mr. Corbat well before he became chairman. Mr. Corbat headed Citi Holdings, the unit that holds the bank's soured assets, and Mr. O'Neill was the board member overseeing relationships with federal regulators for the unit. As such, the two made Washington trips together, according to senior bank executives.

In fact, the boardroom coup that landed Mr. Corbat at the top really stung Mr. Havens because he had long been a champion of Mr. Corbat, according to several people close to the bank.

Exactly when the board settled on a successor is unclear. But a few weeks before confronting Mr. Pandit, Mr. O'Neill called Mr. Corbat in London to tell him there was a possibility he might be called upon in the near term to become the chief executive.

Discussions among the board members accelerated while Mr. Pandit was in Japan at the annual meeting of the International Monetary Fund and the World Bank. When Mr. Pandit returned to New York to prepare for the quarterly earnings call, he had no inkling of what was awaiting him, people close to him said.

Meanwhile, Mr. O'Neill was putting the final touches on his plan, according to people familiar with those discussions. Saying Mr. Pandit would very likely be resigning soon, he summoned Mr. Corbat from London back to New York to take the mantle.